Home owners face another rise in mortgage repayments after the European Central Bank (ECB) today raised rates for the fifth time in 10 months.
The ECB raised interest rates by a quarter percentage point today as expected, taking the benchmark refinancing rate to a near four-year high of 3.25 per cent.
It is the fifth time the ECB has raised rates since December last year as the central bank tries to keep a check on inflation pressures against a backdrop of solid economic growth. Rates are now at their highest since early December 2002.
The rise adds about €40 to monthly repayments on a typical mortgage of €250,000. Another increase is widely expected in December or early next year.
Rising interest rates are feeding through to house prices, according to the data from the Economic and Social Research Institute (ESRI) and Permanent TSB published last week.
For the first time this year, growth rates across all market sectors have stabilised or fallen on the previous month's figures.
The data shows that prices nationally jumped 1 per cent in August, the third month in succession that the rate of growth has slowed. The average price of a home in the Republic is now €306,173. That is €28,000 above the level at the end of last year.
ECB policymakers are worried that past oil prices may still feed into wage demands and consumer prices down the track. They are also concerned that cheap money is pushing up private-sector loans growth, another potential source of future inflation.
The ECB said the interest rate on its deposit facility would also rise 25 basis points to 2.25 per cent, and the rate on the marginal lending facility would rise the same amount to 4.25 per cent.
Solid growth has heightened ECB concern that the euro zone economy could overheat and push inflation up again next year, negating the benefit of a recent drop in oil prices.
The ECB has steadily pushed up rates from their record lows since early December, and at least one more rate rise is expected. Bond markets held steady after the news, while the euro was little changed at 1.2712 against the US dollar and 149.45 against the Japanese yen.
Falling oil prices led annual inflation to drop to 1.8 per cent in September, its lowest level since March 2003 and the first time since January 2005 that it fell within the ECB's target of price growth below but close to 2 per cent.
Nonetheless, the ECB is worried that underlying inflation could rise as growth eats up spare capacity in the euro zone.
Although lower oil prices pushed down producer price inflation in August, rising inflation in non-energy components suggest a tighter job market.